The kindest tax cut

Tuesday, April 12, 2011 | Posted by: Mike Warburton
Categories: Business | Tags: HMRC, budget, legislation, tax policy, tax reliefs, Office for Tax Simplification, OTS, Mike Warburton, budget2011, tax agents

In July 2010, the chancellor announced the establishment of an Office for Tax Simplification (OTS). It was set up to work with tax professionals, and Grant Thornton has given full support. After the OTS produced an interim report last November and a final report in time for the March Budget, the chancellor duly announced his acceptance of some of the recommendations. Mike Warburton reviews the UK’s high volume of tax legislation and the new body’s role.

The volume of tax legislation doubled under Labour
When I started advising on tax 30 years ago, the legislation was in two volumes. Today we have seven volumes, the paper is thinner and the writing is smaller.

Successive governments have been responsible for this growth, but under the previous government alone the volume of tax legislation doubled. Our tax code has now overtaken even that of India. The Treasury, of course, argues that it is the fault of tax advisers and that it has had to introduce legislation to counter various tax avoidance schemes.

Rather intriguingly, it was Gordon Brown in opposition in 1994 who said, in the Labour Party paper ‘Tackling Tax Abuses’, that:

“We shall also examine ways in which the tax system can be simplified. As the Institute for Fiscal Studies pointed out in announcing the establishment of its tax law review committee, in just one year, Parliament has enacted more than 750 papers of tax legislation. It is the complexity of the present system that has encouraged the growth of a flourishing tax avoidance industry.”

Any reasonably intelligent person should be able to understand our tax laws
Whoever is at fault, the fact remains that tax legislation now is far too complicated and needs to be simplified. In my view, tax legislation should be capable of being understood by any reasonably intelligent person who takes the trouble to study the guidance notes issued by HM Revenue and Customs (HMRC). They should not be forced into the hands of professional advisers on a routine basis to identify the way in which they are affected by the tax rules of the country.

Advisers should be there to assist their clients with the more unusual features of the system. I am not arguing for the abolition of the tax services industry, simply that the services we should be providing are those that the client values most, not the services that they are forced to buy because the Government has made it impossible for them to do otherwise.

A national disgrace
There is nothing new in this. When I joined Grant Thornton, the tax practice was headed by a charismatic leader, Philip Hardman. He sadly died 20 years ago, but still has his name on the book of tax tables that we use to this day. Even then, he complained that using up the talents of highly trained people in, respectively, the Inland Revenue and the tax professions in an effort to decipher complex tax rules, was a national disgrace. If he saw the position today, he would be turning in his grave.

Some of the press coverage on the new committee has been cynical. “Tax Simplification, I’ll believe it when I see it,” said the Daily Telegraph, but this time it could really work. Not only is John Whiting the ideal person to lead the Office of Tax Simplification, but it has the strong backing of David Gauke, the Treasury Minister responsible for HMRC.

We need a tax system suitable for the 21st century
I had the pleasure of a private meeting with David Gauke last July, together with Francesca Lagerberg, Grant Thornton’s Head of Tax (who has written about the OTS’s recent reports and influence over on our Elevate blog), and I was impressed with his commitment to the task at hand. It won’t be easy and there will be vested interests arguing against change. There may be resentment at some tax reliefs disappearing. In my view, however, we will only make real progress if we are able to eliminate large chunks of legislation, which may have been introduced for good reason at the time, but are now largely irrelevant.

We must have a tax system suitable for the 21st century, where we have tax rates and tax rules that are competitive in an international context and where businessmen and women know how the rules will affect them.

Grant Thornton is fully behind this new initiative on behalf of both our clients and the country.

You might also find these posts useful:
* Compare the tax reliefs.com as the new OTS completes its review
* Our guide to the 2011 new tax year (it’s bad news for HNWIs)
* Budget 2011: Is Britain open for business? (video)